Okay, I'm Sharon Zackfia, and from William Blair, and I'm really happy to have with us today from The Cheesecake Factory, David Gordon, President, and Matt Clark, CFO. The Cheesecake Factory operates over 200 namesake restaurants featuring a remarkably broad and well-executed menu, which generates best-in-class average unit volumes, alongside its fast-growing North Italia brand, which sits at under 40 locations today. Combined, we believe expansion of The Cheesecake Factory and North Italia hold the potential to grow the company's ultimate revenue more than 50% from current levels, with further optionality associated with Flower Child and concepts under the Fox Restaurant Concepts umbrella. Before handing the podium over, I need to tell you that there's a complete list of research disclosures and potential conflicts of interest at williamblair.com.
Thank you, Sharon. Good morning, and thank you for attending our presentation today. Before we start, I need to remind everyone that this presentation contains forward-looking statements which are covered in detail on this slide. I'll begin by highlighting a few key points about The Cheesecake Factory, as not everyone may be familiar with our story. Our business originated when Oscar and Evelyn Overton founded a small bakery in the Los Angeles area. A few years later, their son, David Overton, our Chairman of the Board and Chief Executive Officer, led the creation and opening of the first Cheesecake Factory restaurant in Beverly Hills, California. Today, The Cheesecake Factory Incorporated is a leader in experiential dining, with highly differentiated, well-positioned concepts that deliver a unique guest experience, which we believe creates a significant competitive advantage.
We currently own and operate 337 restaurants throughout the United States and Canada under brands including The Cheesecake Factory, North Italia, Flower Child, and a collection of other Fox Restaurant Concepts. Internationally, 34 Cheesecake Factory restaurants operate under licensing agreements. Our bakery division operates two facilities that produce quality cheesecakes and other baked products for our restaurants, international licensees, and third-party bakery customers. In 2023, we delivered record annual revenue of $3.4 billion, driven by solid restaurant comparable sales growth and 16 new restaurant openings across our portfolio. Additionally, we're proud to have been recognized as one of Fortune's 100 Best Companies to Work For for the 11th consecutive year, reinforcing that we continue to be an employer of choice in our industry.
North Italia, Flower Child, and our other FRC concepts have strengthened our position as an experiential dining category leader and provide a collection of highly differentiated concepts to drive diversification across our portfolio and long-term profitable growth going forward. While we are excited about the growth opportunities across our diverse portfolio of concepts, the Cheesecake Factory brand, our flagship concept, will continue to be our most significant driver of revenue and cash flow. We currently operate 216 Cheesecake Factory restaurants throughout the United States and Canada. We believe we have a long runway of potential growth ahead of us as we continue to open in new and existing markets, working towards an opportunity of 300 domestic Cheesecake Factory locations. This is complemented by our 34 international locations that operate under licensing agreements across the Middle East, Latin America, and Asia.
Now, while the world is evolving faster than ever, the fundamentals of the restaurant industry always remain the same. Great food, service, and ambiance are still, and likely always will be, the hallmarks of a successful restaurant. The Cheesecake Factory is one of the most differentiated casual dining concepts, with four strategic defining points that set us apart from other restaurant companies and drive our consistent performance. First and foremost, we are a leader in menu innovation and have developed one of the broadest menus in casual dining. Second, we offer a unique, high-energy ambiance coupled with exceptional service and hospitality. Third, we believe we deliver best-in-class operational execution. And lastly, we have an integrated bakery producing our high-quality desserts. At The Cheesecake Factory, culinary R&D is central to our concept.
Each of our 225 menu items is made from scratch in-house with fresh ingredients, including more than 70 different sauces, dressings, and marinades. We pride ourselves on offering something for everyone across all price points. We change our menu twice a year, adding new menu items and sometimes entirely new categories. This ongoing menu innovation drives a high degree of relevance without having to discount. In addition to our innovative menu and warm hospitality, we place significant emphasis on the distinctive interior design and decor of our restaurants, which create a high-energy ambiance in a casual setting. Our guests love our cheesecake, and our bakery is definitely an essential element in creating the cheesecake magic. This drives our industry-leading dessert sales of approximately 17%.
Importantly, we maintain creative and quality control, producing over 60 innovative cheesecakes and other baked desserts for our restaurants and those of our international licensee partners. Of course, none of what I have discussed today would be possible without our persistent focus on best-in-class operational execution. The ability to effectively and consistently execute a concept as complex as ours is dependent on our strong organizational structure and great teams to ensure excellence in quality, service, hospitality, and food safety. We believe we have some of the best operators in the business, with a field operations team of Cheesecake Factory veterans whose careers span between 12 and 34 years with us. Industry research continues to confirm the influence of strong retention on service levels, guest sentiment, and ultimately, restaurant sales.
We believe we have such an incredible tenure because we focus significant energy and resources on ensuring that we are a great place to work. We're very proud to have been named to the Fortune Magazine 100 Best Companies to Work For list for 11 consecutive years, as well as recognized as a top workplace for diversity, millennials, and women. These accolades support our belief that we are well-positioned with respect to attracting and retaining talent relative to many others in the restaurant industry. Combined with these differentiating elements, contribute to the Cheesecake Factory restaurants appealing to diverse customer bases across a broad demographic range. Additionally, our extensive menu and strategic selection of locations enable us to compete for sustainably all dining preferences and occasions, from the key lunch and dinner day parts, to the mid-afternoon and late-night day parts.
The attributes of our frequent guests underscore the tremendous brand loyalty that we possess. Approximately 70% are under 45 years old, and overall, they skew highly educated and higher income. As the experiential nature of the Cheesecake Factory and the wow factor of our food and signature desserts play very well to current visual content trends. The affinity for our cheesecakes and the Cheesecake Factory brand more broadly, drives strong consumer engagement and has enabled us to achieve cult status in the restaurant industry. As a company that hasn't historically used traditional paid advertising, we have built our success on word of mouth. Today, we continue to do so by leveraging social media across all channels, as well as broadcast, print, and digital media, to engage with our guests and further enhance our brand's awareness.
In fact, the Cheesecake Factory has significantly more Instagram followers and substantially outpaces casual dining peers and followers relative to sales. And the brand is entrenched in pop culture, with a high degree of unsolicited celebrity endorsements, including mentions in song lyrics, Twitter feeds, viral videos, and we even served as a setting in The Big Bang Theory TV show, resulting in international brand recognition. Now, I'd like to pause for a moment to give you a glimpse of some of the great press we've received that underscores the tremendous affinity for the Cheesecake Factory brand, as well as our position as an employer of choice in the restaurant industry. Cue video.
If it makes you feel good, you're excited. Feel good!
Let's talk about this, because this woman went viral for shaming her date for choosing the Cheesecake Factory for dinner.
Look at me, I cannot go in a Cheesecake Factory.
A list has exploded on the internet, telling women where they should absolutely refuse to go on a first date. But at the top of the list, The Cheesecake Factory. What do you guys think of this? I mean, Akbar.
I am so sorry. The Cheesecake Factory, 15 years ago, is where I met my wife.
Yes!
We go there every single year to celebrate our anniversary. It has an encyclopedia-
Yes, of a menu.
... of a menu.
Baby, you could find me under the lights. Diamonds under my eyes. Turn the rhythm up, don't you wanna just come along for the ride? I could dance, I could dance, I could dance. Watch me dance. Let's dance the night away. I, I could dance, I could dance, I could dance.
We're gonna start with the most popular guy in the NFL right now, Travis Kelce.
Oh, that guy?
He went viral for wearing a statement-making suit ensemble.
Yellow suit with a stripe-
Sick
... turtleneck, looking like a Cheesecake Factory menu-
And a beanie.
Right there. Look at that. Look at it, just like a Cheesecake Factory menu.
I like this.
Watch me dance. Let's dance the night away. My heart could be burning, but you won't see it on my face. It's me, hi, I'm the problem, it's me. At tea time, everybody agrees. I'll stare directly at the sun, but never in the mirror. It must be exhausting, always rooting for the anti-hero.
Before we go, I'd love to read an excerpt from the one book that will never be banned in America. It's called Menu by The Cheesecake Factory.
... Today, I'm eating everything from The Cheesecake Factory. It's the most anticipated restaurant of all time. There's so many parts of this menu. I think there's 13 categories with, like, 26 subcategories. There's 40 cheesecakes, and there's other desserts, too.
Hey! You feel like something, baby, in another body. So much to do, now we're dancing in the lobby. Know every inch of all that body, but the feeling is good.
A little birdie told us that you made a New Year's resolution.
Yes, The Cheesecake Factory is the best place on planet Earth. I love it. It loves me. Go to The Cheesecake Factory as much as you can-
Why the Cheesecake Factory?
Because life is short. Because Cheesecake Factory is delicious!
In honor of your love for Cheesecake Factory, Amber Ruffin, we would like to present a very special Today Show cheesecake. Oh, yo, this is actually from the Cheesecake Factory.
I know it's from the Cheesecake Factory! My God, it's so fun.
Cheesecake does not mess around.
It's so good at 9:30 A.M.
We have a holiday spread here, peppermint stick chocolate swirl cheesecake from the Cheesecake Factory.
I don't care if it's real or not. I'm so happy that National Cheesecake Day is this Sunday.
Sounds made up, though.
I love it.
It doesn't matter.
I love it.
Doesn't matter. We're celebrating early with a look at how one recipe helped jumpstart a global chain, the Cheesecake Factory.
The Cheesecake Factory created a new flavor. This is cookie dough rubber-
That's right.
Cheesecake with pecan.
Don't say I didn't warn ya. So it's gonna be forever.
Okay.
Ooh, these are from, North Italia Modern Italian here in L.A. This is a spicy, Calabrian Buffalo Chicken Pizza with house giardiniera, three kinds of cheese. You got fontina, gorgonzola, and smoked mozzarella. Now, like, that's a fancy schmancy-
Ooh, the buffalo one is new. It's my new favorite one. A lot.
Oh, you love-
Buffalo.
Okay, here we go.
Uh-huh. Uh-huh.
Mm.
Oh, that's good.
Oh, that's good.
I like that.
I like me an array of cheeses.
Mm-hmm.
Watch me dance, dance the night away. Makeup might be running, but you won't see it on my face. Watch me dance, dance the night away. I'll still keep the party running, not one hair out of place. When my heart breaks, gonna dance to it, gonna dance to it. When my world shakes, I stay alive, I feel alive. I don't play it safe. Don't you know about me? I could dance, I could dance, I could dance tonight!
As you could see from our marketing reel, the Cheesecake Factory resonates across demographics, from Gen Z to baby boomers to everybody in between. In many ways, we deliver to our guests fine dining quality at a casual dining price. This is what enables us to generate industry-leading average unit volumes with a moderate average check. Leveraging our differentiated positioning, high quality, made-fresh-from-scratch menu, and value proposition, supported by creative on-brand marketing, we have driven meaningful and, importantly, incremental growth in off-premise sales. Delivery is available in all of our restaurants through an exclusive national delivery arrangement with DoorDash. With our shared focus on quality and operational excellence, this relationship has enhanced the guest delivery experience while enabling us to realize meaningful profits from this channel. And all of our restaurants nationwide also offer online ordering for guests that opt to pick up their orders.
Total off-premise sales have grown significantly, stabilizing over the last few quarters at 22% of sales, meaningfully above pre-pandemic levels. This reflects the contribution from delivery, as well as continued growth of our takeout business. To put this in perspective, that equates to about $2.7 million per restaurant per year on average, significantly higher than the industry. North Italia is a modern interpretation of Italian cooking in the upscale casual dining segment, with dishes that are handmade from scratch daily, including all of the pastas. North also offers a thoughtfully curated selection of wines, beers, and house-made cocktails, driving an approximately 25% alcohol mix. Additionally, a key element of North Italia is the focus on tailoring each location to feel like your local Italian restaurant.
For example, each market has some unique dishes and drinks incorporated locally incorporating locally sourced ingredients, and the ambiance and decor is distinct, with each location featuring a bespoke hand-painted wall mural incorporating specific characteristics from the surrounding area. We now operate 39 North Italia restaurants across 13 states, plus Washington, D.C. With Italian cuisine being the number one ethnic food category in the United States, coupled with strong national reception of the North Italia concept to date, we believe there is potential for 200 domestic locations over time, which supports our plan for approximately 20% average annual unit growth. We continue to be very encouraged by the performance of the concept, as we have expanded into new markets, as evidenced by our sales outperformance relative to the industry.
Flower Child is a fast-casual wellness lifestyle offering, a customizable menu made from scratch ingredients, featuring locally sourced, all-natural, and organic ingredients, and now has 32 locations nationwide. Over the past 18 months, we have successfully implemented several operational and supply chain improvements to enhance the guest experience and drive cost efficiencies, including implementing a kitchen display system, replaced the loyalty platform with a more robust and scalable solution, expanded the new restaurant opening training teams, deployed operational dashboards to provide improved planning and performance visibility, and integrated purchasing into the broader Cheesecake supply chain operations to take advantage of our scale and purchasing capabilities. We believe the concept is now well positioned for growth as we look to accelerate development of this concept to around 15%-20% growth annually.
FRC is comprised of a group of concepts that are diverse in industry segment, occasion, square footage, and geography. Led by Sam Fox, its founder, it serves as an incubation engine to develop innovating concepts of the future. FRC currently operates 42 restaurants, and together, these concepts serve as an ecosystem for talent, menu, and design development. Other FRC potential growth concepts currently include Culinary Dropout, Blanco, and The Henry. We have steadily accelerated our unit growth over the last several years. In 2022, we opened 13 new restaurants across our portfolio of concepts. Last year, we opened 16 new restaurants. Building on this momentum, this year we are on track to open as many as 22 new restaurants, with 7 new openings year to date as of today.
Looking further ahead, we believe our collection of high-quality concepts, coupled with our financial position, has the potential to support strong unit growth for years to come. Lastly, let me provide a brief update on the Cheesecake Rewards program since the launch last June. As a reminder, our overarching objective is to leverage data analytics and insights to engage more effectively with our guests and drive incremental sales while maintaining our restaurant's level margins. Early demand continues to exceed our internal expectations, and we remain encouraged by the level of member activity and engagement that we're seeing. We're taking a very deliberate approach as we expand the program, and therefore, do not anticipate seeing a measurable impact to sales for at least the first year or so.
At this stage, we're continuing to test acquisition tactics and activation campaigns to better understand the key elements that are resonating with rewards members and most effectively increasing membership enrollment, engagement, and driving frequency. With that, I'm going to turn it over to Matt Clark to review our sales leadership, growth opportunities, and our financial resiliency, all reasons we are very excited about the future.
Thank you, David. The unique and compelling dining experiences we create for our guests have driven consistent and competitively strong sales performance relative to the rest of the casual dining industry. While the Great Recession isn't a perfect proxy for the operating and economic challenges following the pandemic, our sales trends recovered one year earlier than the broader industry and set us up for meaningful outperformance the following few years. Most importantly, despite the dynamic environment we've experienced over the last few years, comparable sales and traffic at the Cheesecake Factory restaurants has continued to outperform the casual dining segment, demonstrating the strength and resilience of our namesake brand. Based on our performance through prior economic shocks and cycles, our business has proven to be very durable.
In 2023, the company generated over $210 million in cash flow from operating activities to support unit growth, while returning nearly $100 million to shareholders in the form of dividends and stock repurchases. We believe our solid liquidity position, along with our expected cash flow levels, will support our long-term growth objectives, as well as our capital shareholder return programs. We delivered solid Q1 2024 results, with 20% growth in adjusted earnings per share over the prior year, predominantly driven by adjusted net income margin improvement and sales growth. The Cheesecake Factory restaurants' comparable sales once again meaningfully outperformed the industry, importantly, driven by solid traffic outperformance, underscoring the strength of consumer demand for our brand and demonstrating our ability to capture market share.
We successfully opened five restaurants in the first quarter, and we returned $25 million to our shareholders in the form of dividends and stock repurchases. I wanted to recap some of the key underlying assumptions we provided during our last earnings call in May. Based on extrapolating current trends and assuming no material operating or consumer disruptions, we would anticipate total revenues for the year to be approximately $3.6 billion. As we have said earlier, our goal is to effectively offset inflation with menu pricing to support our margin objectives. Assuming we achieve this goal, input costs and consumer trends remain consistent, and there are no other material exogenous factors, we would expect full year net income margin of approximately 4.25% at the revenue level I provided.
We are planning for as many as 22 NROs for 2024 and anticipate approximately $180 million-$200 million in CapEx to support this level of unit development, as well as the required maintenance on our restaurants. Lastly, we will continue to return capital to our shareholders through our regular quarterly dividend and share repurchase program. As we look ahead, the performance of The Cheesecake Factory, as well as North Italia, Flower Child, and the FRC concepts, continues to reinforce our confidence in the strength of our brands and their long-term growth potential. Financially, strong unit economics are a key driver of our growth decisions as we invest in new restaurants that we believe will achieve our targeted returns.
The Cheesecake Factory, North Italia, Flower Child, and FRC all possess some of the most compelling unit economics in the industry and position us to potentially drive significant accretive growth over time. Based on our anticipated roadmap for each brand, we expect to generate long-term annual unit growth of 7%, which we believe will be one of the highest unit growth rates in the casual dining industry, while providing diversification with respect to restaurant segment, price point, real estate, and even our labor model. In closing, we are a leader in upscale casual dining with highly differentiated, well-positioned concepts that deliver a unique guest experience, creating what we believe is a significant competitive advantage. Our business remains healthy, with top-line trends substantially stabilizing, improving profit margins, normalizing input costs, and solid operational execution.
We are looking to build on this momentum and believe we are poised to once again generate our historically consistent operational and financial results, and to make meaningful additional steps in 2024 towards our longer-term goals in the areas of value creation, growing restaurant comparable sales, expanding restaurant operating margins, and accelerating accretive unit growth. With that, thank you for coming today.